Originations

The major commercial property types were either stable or showed slight improvement in the third quarter of 2002, according to Moody's Investors Service."Although commercial real estate typically lags the business cycle, the signals point to continued stability or the early signs of recovery from the down part of the real estate cycle," said Sally Gordon, a Moody's analyst who conducted the study. The hotel sector showed the greatest improvement, shooting up to 32 points for the third quarter from zero in the second quarter, the study found. Neighborhood and community shopping centers were best positioned, with a score of 88. Ms. Gordon said this segment "is sufficiently robust to withstand some modest relaxation of demand growth." The multifamily sector moved up to 76 points, from 75 in the second quarter, while the office sector rose from 46 to 50 and the industrial sector rose from 52 to 58. Markets with the best showing overall in the third quarter were New York; Long Island, NY; Norfolk, Va.; northern New Jersey; and Riverside, Calif. Those with the worst showing were Denver; Austin; Baltimore; Stamford, Conn.; and St. Louis. Moody's can be found online at http://www.moodys.com.

Jeffrey Henschel has been named president and chief operating officer of First NLC Financial Services, a subprime mortgage lender based in Deerfield Beach, Fla.Mr. Henschel, who has been with First NLC for eight years, was formerly executive vice president and chief legal counsel. The company can be found on the Web at http://www.firstnlc.com.

The Enterprise Social Investment Corp., Columbia, Md., and Freddie Mac have announced a new $100 million equity fund aimed at spurring the development of affordable housing across the nation.ESIC will manage the fund, Freddie Mac Equity Plus II - ESIC LP, and underwrite affordable-housing projects for the fund through the federal government's Low Income Housing Tax Credit program. Freddie Mac said the new fund, a follow-on to one established in 2001, was established through its Equity Plus initiative, which allows the government-sponsored enterprise to invest up to 100% of the equity in specific multifamily projects. "The success of our first $50 million single-investor tax credit fund inspired us to create this second fund and to increase the investment amount to $100 million," said Christine Hobbs, director of Freddie Mac's Multifamily Community Development Investment Group. ESIC, a subsidiary of The Enterprise Foundation, can be found online at http://www.enterprisefoundation.org/esic. Freddie Mac can be found at http://www.freddiemac.com.

Five classes of Host Marriott Pool Trust commercial mortgage pass-through certificates, series 1999-HMT, have been downgraded by Standard & Poor's Ratings Services.The downgrades were as follows: class C, from AA-minus to A-plus; class D, from A to BBB-plus; class E, from A-minus to BBB-minus; class F, from BBB to BB; and class G, from BBB-minus to B. The rating on class A was affirmed. The downgrades reflect a deterioration in the pool's operating performance, as indicated by a decline in debt service coverage and a rise in loan-to-value ratio since issuance, S&P said, pointing to a 19% falloff in net cash flow. The transaction consists of a single fixed-rate loan secured by eight cross-collateralized and cross-defaulted hotels, including the New York Marriott Marquis in Manhattan, which represented 51% of the pool's total net cash flow in 2002. S&P can be found online at http://www.standardandpoors.com.

Lender's Service Inc., Pittsburgh, one of the largest closing services firms in the U.S., is on the auction block, MortgageWire has learned.LSI, which changed hands a few years ago, is being shopped around by Merrill Lynch, industry sources said. A deal could be close, said one official familiar with the matter. LSI's majority investor is a venture fund called Desai Capital. In a statement to MW, Desai said it has "determined that this is an opportune time to seek additional investment capital or explore the sale of the company." LSI's previous owners (at different times) include Merrill, and Prudential Home Mortgage, Clayton, Mo. (For full details on potential bidders, see the Jan. 13 issue of National Mortgage News.)

Employment in the mortgage industry rose 1.7% in December to a new record as lenders continue struggling to process refinancing and home purchase applications.While employment in the U.S. dropped by 101,000 last month, the U.S. Bureau of Labor Statistics reported that jobs in the mortgage banker/broker sector increased from 401,600 in November to 408,400 in December. Mortgage lenders added 56,300 new hires to their payrolls in 2002 -- a 16% increase. Meanwhile, the BLS reported that the U.S. unemployment rate remained stuck at 6% and that the loss of jobs in November was 88,000 -- more than double the preliminary estimate made last month. Despite this dismal jobs report, James Smith, chief economist for the Society of Industrial and Office Realtors, said he expects strong economic growth in 2003 and continued demand for refinancings. "If productivity growth stays strong … interest rates will stay low," he said at a news briefing. The BLS can be found online at http://stats.bls.gov.

Two classes of DLJ Commercial Mortgage Corp. commercial mortgage pass-through certificates, series 2000-CKP1, have been downgraded by Fitch Ratings.Class B-8 was downgraded from B to CCC, and class B-9 was downgraded from B-minus to C. The ratings on 12 other classes in the deal were affirmed. The rating agency attributed the downgrades primarily to the pool's exposure to the bankrupt retailer Kmart. "Currently there are 10 loans representing 6.1% of the pool secured by properties with exposure to Kmart," Fitch said. "Kmart has rejected the leases on three of the properties representing 2% of the pool. Significant losses are expected on these three loans." Fitch can be found on the Internet at http://www.fitchratings.com.

The continued weakening of industry fundamentals even as prices for prime commercial real estate climb has raised concern among investors, according to the PricewaterhouseCoopers Korpacz Real Estate Investor Survey."Even the most optimistic investors worry that the longer the downturn persists, the greater likelihood of widespread income losses," said Peter Korpacz, a director in PwC's Global Strategic Real Estate Research Practice. "Rental rates will fall, vacancy rates will rise, and overall cap rates will fail to offset the resulting drop in income that will occur." Among the report's other key findings are: that apartments continue to be the most sought-after property; that regional malls and well-leased office buildings in key markets were caught in bidding wars in the fourth quarter; that the suburban office market still suffers from a glut of available office space; and that the majority of recent acquisitions by REITs have been in the retail sector, while institutional and foreign investors have been active buyers of office properties. PwC can be found on the Web at http://www.pwcglobal.com.

The ratings on the most subordinate class from each of nine commercial mortgage-backed transactions have been placed on watch for possible downgrade by Moody's Investors Service.The rating agency said the actions were due to interest shortfalls caused by legal fees and other expenses incurred by the master servicer -- all related to terrorism insurance issues -- that have been or will be passed through to each transaction in January or February. The affected commercial mortgage pass-through certificates were as follows: 280 Park Avenue Trust, series 2001-XL280, class F; 1251 Avenue of the Americas Trust, series 1999-XL1251, class E; 1345 Avenue of the Americas Trust, series 2000-XL1345, class F; Hilton Hotels Pool Trust, series 2000-HLT, class F; Morgan Stanley Dean Witter Capital I Inc., series 2001-XLF, class H-11; Opryland Hotel Trust, series 2001-OPRY, class E; Sawgrass Mills Trust, series 2001-XLSGM, class F; Starwood Commercial Mortgage Trust, series 1999-C1, class D; and TrizecHahn Office Properties Trust, series 2001-TZH, class E-4. Moody's can be found on the Web at http://www.moodys.com.

The consensus of major industry economists who participated in a Jan. 8 Homeownership Alliance conference call seemed to be that lenders and builders are likely to see a slight slowdown in the origination and housing markets this year and a slight increase in mortgage rates.The chief economists from the National Association of Home Builders, the National Association of Realtors, the Independent Community Bankers of America, Freddie Mac, and Fannie Mae participated in the call. The alliance can be found on the Web at http://www.homeownershipalliance.com.

Both new- and existing-home sales should decline somewhat this year while still racking up their second-best totals on record, according to the National Association of Realtors.The NAR is projecting 5.34 million existing-home sales and 941,000 new-home sales in 2003, compared with last year's expected record totals of 5.56 million and 979,000, respectively, said David Lereah, the association's chief economist. "The momentum gained from low mortgage interest rates will carry strong home sales into 2003, with an improving economy offsetting modestly higher mortgage interest rates as the year progresses," he said. The NAR is projecting that the 30-year fixed mortgage rate will rise to 7% by the fourth quarter and that the gross domestic product will grow 3.1%. The NAR can be found on the Internet at http://realtor.org.

The average 30-year fixed mortgage rate rose to 5.95% for the week ending Jan. 10 from a survey-record low of 5.85% the previous week, according to Freddie Mac's Primary Mortgage Market Survey.The average 15-year fixed mortgage rate rose from a survey-record low of 5.24% to 5.33%, while the average rate for one-year Treasury-indexed adjustable-rate mortgages dipped from 4.06% to 4.03%. Fees and points averaged 0.5 points for 30-year fixed-rate mortgages and 0.6 points for ARMs and 15-year FRMs. "Recent data indicate a possible turnaround in the manufacturing sector of the economy," said Frank Nothaft, Freddie Mac's chief economist. "This is good news, since the depressed manufacturing industry had previously been a drag on the economy. Meanwhile, in spite of the sluggishness in the economy, nearly 25% of all mortgages were refinanced in 2002, saving those homeowners an average $1,200 per year to spend or save as they see fit." A year ago, the average 30-year and 15-year fixed rates were 7.06% and 6.55%, respectively, and the average one-year ARM rate was 5.26%, Freddie Mac said. Freddie Mac can be found on the Web at http://www.freddiemac.com.

Joining other critics of the economic stimulus package presented by the Bush administration, the National Low Income Housing Coalition is calling upon Congress to include funding for affordable housing production and rehabilitation in any such package.Commenting on the president's economic proposal, NLHIC president Sheila Crowley said it is "yet another giveaway to the well-to-do" and a "loss of revenue" that may turn into spending cuts that will hurt housing programs, among others. Instead, she urged Congress to increase funds earmarked to build housing, which she said is "a proven economic stimulus" that creates jobs "while meeting a demonstrated need."

Investcorp has acquired two multifamily communities for a total purchase price of approximately $60 million and sold four multifamily and retail properties for a total of $88.5 million.The New York-based investment firm acquired the multifamily properties -- a 400-unit property located in Orlando, Fla., and a 456-unit in Nashville, Tenn. -- from affiliates of Archstone Communities Trust. This brings Investcorp's total 2002 acquisitions to approximately $750 million, the company said. Investcorp said it has recently focused on office and industrial property, but that the excellent locations of these properties made them attractive to the company. The four properties sold are: a 208,959-square-foot Madison, Wis., community center; a 153,360-square-foot Boynton Beach, Fla., retail property; a 330-unit, class A Houston multifamily property; and a 400-unit, class B Jacksonville, Fla., apartment community. The sales brought Investcorp's total real estate realizations for 2002 to approximately $315 million, the company said.

H&R Block's Option One mortgage unit has an origination strategy designed to fare well regardless of whether rates rise this year, executives told attendees at a late afternoon investor conference in New York Jan. 7.The executives said they do not believe that they would be materially affected if a rise in rates occurred because they make loans to subprime credit borrowers, who tend to be motivated more by their personal financial needs. Subprime borrowers "are not waiting for the Fed to move rates," one executive noted.

UCAP Inc., Denver, the parent of United Capital Mortgage Corp., has hired SBI Discovery Group, an investment banking firm, to assist in the execution of its corporate finance strategy, investor management, and the evaluation of strategic partnerships."The Discovery Group brings the experience and access to capital that we have never had before and we feel that the Discovery Group will be able to take us to the next level regarding investor relations/management and effective capitalization," said David Colwell, chief executive of UCMC and chief operating officer of UCAP. SBI Discovery Group is a division of First Securities USA specializing in providing its services for middle-market companies in multiple-technology and high-growth sectors.

The credit performance of commercial mortgage-backed securities has been especially strong for nearly a decade, suggesting that pooled commercial mortgages have been "carefully underwritten with unique credit performance characteristics," according to Standard & Poor's Ratings Services.The report, "Credit Performance of U.S. Commercial Mortgage-Backed Securities," cites a study of cumulative principal losses -- and potential future losses -- of 237 pools of multiborrower CMBS rated by at least one U.S. rating agency from 1994 to mid-2002. So far, losses have been minimal, and they are positively associated with pool characteristics such as original loan-to-value ratio, the spread of mortgage note rate over the 10-year Treasury yield, age, and the maturity term of the underlying mortgages, the report says. Dr. Joseph Hu, managing director of research in structured finance at S&P, said the strong CMBS performance is attributable in part to "the economic prosperity of the past decade that greatly benefited the market value of commercial real estate properties."

Mortgage applications jumped 24.3% on a seasonally and holiday-adjusted basis for the week ended Jan. 3, according to the Mortgage Bankers Association of America's Weekly Mortgage Applications Survey.On an unadjusted basis, applications were up 46.9% on the week and 160.2% from the level recorded a year earlier. On a seasonally adjusted basis, the Purchase Index rose from 332.4 to 376.2, and the Refinance Index surged from 4548.8 to 5871.1. Refinancings represented 77.8% of total applications, up from 75.9% the previous week, while adjustable-rate mortgages accounted for 11.9%. The average contract interest rate for 30-year fixed-rate mortgages increased from a survey-record low of 5.69% to 5.85%, and points (including the origination fee) decreased from 1.53 to 1.43 for loans with 80% loan-to-value ratios, the MBA reported. The MBA can be found online at http://www.mbaa.org.

The title insurance industry has scored a second victory in California against Radian Guaranty Inc., as an administrative law judge there has upheld a cease-and-desist order barring the sale of Radian Lien Protection.Executives at the Philadelphia-based mortgage insurer called on the state's new insurance commissioner, John Garamendi, to reject the latest ruling. "Although Radian Lien Protection has been approved by other states, including most recently the Illinois Department of Insurance, this ruling denies its benefits not only to Californians, but to homeowners across the nation," said Howard S. Yaruss, Radian's executive vice president and chief counsel. Radian stopped offering the product when the original cease-and-desist order was issued in June 2002. From the American Land Title Association's perspective, the decision "safeguards consumers against unregulated, unlicensed title insurance products," said James Maher, executive vice president. Eight other states have barred Radian Lien Protection, he added. Radian can be found online at http://www.radianmi.com.

The cost of office space will continue to fall this year in key West Coast markets such as Seattle and Silicon Valley, and to a lesser extent in New York, according to real estate services firms Grubb & Ellis Co., New York, and Knight Frank, London.Office space costs are projected to decline 6.1% in Seattle, 5.8% in San Jose, Calif. (the capital of Silicon Valley), and 2.6% in New York. Meanwhile, the companies' 2003 Global Real Estate Forecast sees costs rising significantly in such foreign cities as Bangkok, Thailand (up 6%); Adelaide, Australia (up 5%); and Shanghai, China (up 5%). "One of the key reasons we plan on conducting this study for years to come is that the real estate cost -- which for most companies is the second-highest cost of doing business, behind human capital expenses -- is moving out of the classification 'necessary evil' and into the boardroom as a significant planning consideration for global expansion," said Bob Bach, national director of market analysis at Grubb & Ellis. The companies can be found online at http://www.grubb-ellis.com and http://www.knightfrank.com.